Longform

Drilled, Baby, Drilled: The strange battle to keep Big Oil from cheating

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Even after Maxwell won a $7.5 million jury verdict against Kerr-McGee in a federal courtroom in Denver in 2007, MMS continued to declare on its website that the company didn't owe the government the money. The verdict was thrown out a few weeks later by U.S. District Judge Philip Figa on jurisdictional issues but was reinstated in 2008 by the 10th Circuit Court of Appeals. Maxwell attorney Sean Connelly says the DOJ attorneys "supported the jury verdict" and were helpful "silent partners" behind the scenes. It took another three years to finalize the $26 million settlement and attain government approval of the 30 percent share that Maxwell will receive.

"I never worked so hard in my life to give the government $16 million," says Richard LaFond, another one of Maxwell's attorneys. "This case is A Civil Action with a happy ending. But the road has been incredible."

"I still can't believe it's over," says Maxwell. "After nine years and so many ups and downs, I'm still kind of numb."

For Little and Arnold, it's far from over. Their lawsuit against Shell was moved from Oklahoma to Texas at the company's request — where, for almost five years, it sat as inert as an expiring lizard in the Houston courtroom of Lynn Hughes, an industry-friendly federal judge whose financial-disclosure reports list stock in Chevron and mineral royalties on properties he owns. (Hughes was reportedly BP's choice to oversee the slew of lawsuits filed against the company after the 2010 Gulf oil spill.) Last April, Hughes dismissed the case, claiming that the auditors had "attempted to manufacture a claim by violating rules and issuing arbitrary orders."

The auditors' attorneys — a team that includes some of the same Denver lawyers who represented Maxwell, including LaFond, Connelly, and Michael Porter — have appealed Hughes's ruling. They are also seeking to get the case reassigned to a different judge, arguing that the decision was so one-sided and dismissive that "an objective observer reasonably would question the district court's impartiality." Their appeal is being contested not only by Shell, but also by the Department of Justice, which contends that it's a conflict of interest for federal auditors to bring False Claim Act cases on their own.

Attorney Porter says that there's substantial case law that federal employees can bring such suits — including, of course, the Maxwell case. Amendments made to the law 25 years ago were designed to encourage whistleblowers like Little and Arnold, he points out: "If the government isn't doing its job, who else is going to bring these kinds of suits?"

Little says he was told by Justice attorneys that his case was a good one to pursue, but that the government couldn't support it because it didn't want to "open the floodgates" to similar cases from rogue federal workers. He and Maxwell both believe that officials at Interior have also attempted to discourage government participation in the actions.

"Arnold and Little are good people, two of the best I ever worked with," Maxwell says. "The issues they developed are valid. But Interior will go to the extreme not to get involved — because if they do, they look like idiots. We blew the whistle, and they ignored it."

   Last fall, Tom Strickland, Salazar's ethics czar, left Interior for a job with the law firm that was defending BP in the oil-spill debacle. Over at the restructured Office of Natural Resource Revenue, director Greg Gould is focused on the future, not his predecessors' blunders. He's implemented new data-mining programs that pore over royalty reports and have already caught millions of dollars in reporting errors. "That's eight million dollars we would have caught in our audit process, but we would have caught it two or three years later than we're doing now," he says.

Gould has also increased the auditing staff substantially. The number of audits performed by ONRR declined initially compared to the Bush years at MMS, from 339 in 2008 to 162 in 2010. But last year the team nearly doubled the number of audits, bringing the number back up to 311. The total amount of dollars recovered from compliance efforts, while rising, still lags behind the $176 million averaged annually during the Clinton administration.

The ONRR director believes that could be due to several factors, including the agency's willingness to impose substantial civil penalties on transgressors. Last summer, for example, Chevron was hit with a $1.1 million fine for claiming improper transportation deductions on offshore leases. "The companies are getting in line," Gould says. "If companies are complying up front, you're not going to see as much recovered in audits. Our goal is to collect every dollar due — no more, no less."

Randy Little is a bit too cynical to accept on face value the claim that energy companies that do business with the government are starting to follow the rules. He'd like to look at the books first. Nothing beats a detailed audit for catching fraud.

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Alan Prendergast has been writing for Westword for over thirty years. He teaches journalism at Colorado College; his stories about the justice system, historic crimes, high-security prisons and death by misadventure have won numerous awards and appeared in a wide range of magazines and anthologies.
Contact: Alan Prendergast